Mr. Adetunji Oyebanji, MOMAN Chairman
-By Felix Douglas
The Major Oil Marketers Association of Nigeria (MOMAN) as the name implies comprises of major oil traders operating in Nigeria downstream industry both indigenous and international companies.
Recently its Chairman, Mr. Adetunji Oyebanji who has been operating in the sector for more than 30 years had a virtual interview with journalists on numerous issues bothering the downstream.
Oyebanji made it known that subsidy is not favourable to Nigeria and Nigerian National Petroleum Corporation (NNPC) is bearing huge cost to ensure availability of Premium Motor Spirit (PMS) commonly known as petrol or fuel. He opined that money spent for fuel subsidy could have been channeled for infrastructural development across the country. There has to be debate involving all stakeholders and government to chat the way forward.
The MOMAN chairman responded to questions from journalists and posited that if the Petroleum Industry Bill (PIB) is signed into law with virile legislation enhancing the petroleum industry, it will address bourgeoning issues in the sector.
What is the current development of the oil market and Nigeria’s refineries?
We import petroleum products from other countries and I believe we can really take full advantage to increase our refining capacity.
You asked about how things are as far as the current development in the market where crude oil prices have continued to be on the rise in recent time. It is about $59 to $60 per barrels. Looking at it from two perspectives, the price of Automotive Gas Oil (AGO) at the pump has gone up significantly and much higher than it used to be when the price of crude was low. Ideally, that is what could have happened for PMS. But NNPC is the sole importer of gasoline into the country. Marketers sell based on the prices that NNPC makes available to them.
The underline question you are asking is that, is there no subsidy? Well! It means that somebody somewhere is paying the difference between international price and the price at which marketers are selling at the pump.
Unfortunately, and ultimately, it is Nigerians that are bearing the cost even though they may not feel it in their pockets but it is felt in the fact that money that could have been used for infrastructural development and social welfare are being spent to ensure that prices of PMS are essentially at satisfactory level.
But for us MOMAN members we buy primarily from NNPC at a price fixed by the company. NNPC is bearing a huge burden.
The ever-increasing price of PMS is certainly creating instability for businesses and individuals, what does MOMAN think is the best approach to mitigate this impact?
The crux of the matter is that the media, government and civil society need to have a debate to say it seems inevitable that the country has to do away with paying subsidy because it can no longer afford it. Anybody who knows simple basic economics would know that Nigeria cannot continue to spend more than the country is earning. It is not sustainable whether for an individual, company or a country. So, it is inevitable that the country do away with subsidy since prices of refined product fluctuates in the market. Presently, the price of diesel today was not always at what it is.
The big debate should be on how to mitigate the impact on people. The suggestions we made included the first optimization, not only in the petroleum industry but across board in the whole country. If for instance as a father I call on my children to make sacrifices for the family and it will be rather unfortunate if at the same time I am living a lavish life. My children will find it hard to follow me. There is need to look at the cost of governance in Nigeria across the whole spectrum. Everywhere and in every aspect, people should come together to debate it perhaps with suggestions on how savings could be made. It is about having a debate as to what can be done to assuage the impact of deregulation on Nigerian people.
If all stakeholders are involved in the debate with ideas that will make government to implement some programmes to make life easier for people.
How is MOMAN keying into auto gas scheme of the government which is also one of the ways to reduce impact of crude oil fluctuations in the country.
We are keying into auto gas and several of MOMAN members are interested in gas facilities at their retail outlets. My company and many of other members of MOMAN have already put facilities in place in their stations easily convert to LPG usage. This is something we are doing and in addition with Department of Petroleum Resources (DPR) over 9000 retail outlets across the country have been identified as areas for potential set up for LPG facilities. We are going to pursue this objective along with DPR to ensure that we deepen the use of auto gas service across the country. It is an ongoing project. In my company, we are rolling out several additional gas facilities across the land.
MOMAN members will be working with government because we need to set up auto conversions centres so that people can convert their cars to be able to use either gas or petrol. Many countries use gas for driving cars or for commercial busses. It is a very common thing I don’t see why Nigeria should be different.
Is there any assurance that marketers will have access to Foreign Exchange (FOREX) to import petrol after pump price increase? What are the marketers doing to ensure that this will not remain a major challenge?
As business people, primarily, it is not a question of whether we want to move on, it is a question of whether the FOREX is available. Certainly, if it becomes easier to access FOREX nobody will quarrel about it. The only issue of course is at what rate are we going to get it. If we get it at a price that is competitive such that everybody is on a level playing field and we are all getting it at the same rate then it will engender competition in the industry. But if you have a situation where maybe one entity is getting FOREX at a much cheaper rate than others it will result to a challenge to compete in such an environment.
Marketers are not the provider of FOREX they use. We have to buy it from the banks but they are not able to generate the kind of quantum that is required as far as the downstream is concern because one cargo of PMS may cost $10 to $15 million. It is virtually impossible to accumulate that kind of FOREX. It has to be made available; it is not only an issue of availability but at what rate the FOREX is sold.
There has been petrol pump price increase for almost three months despite increase in oil prices. Why did this happen and how did it affect marketers?
We are in a dilemma today. When we hear that crude oil price goes up on the one hand it is a good news for Nigeria because it means that FOREX earnings will bounce back and what we need exchanges for becomes easy. But one of the biggest uses of FOREX that is generated is to import refine products. Unfortunately, when the price of crude goes up, the price of refined product goes up as well and it is passed on to consumers as it should be in a fully deregulated environment. As crude oil price increases the price of refined product will also increase.
The dilemma of course is that any time this happens as it has happened for the last two decades or more Nigerians resort to strike action whereby people are on the streets protesting against market realities. It is a dilemma that we cannot continue to run away from as a country because we can no longer afford subsidy.
NNPC absolves that difference but it is not sustainable in long term. Marketers cannot continue to buy at N100 and sell it at N60 even if it is a government, it will break down. It is not something that is done continuously indefinitely. This is the dilemma marketers are facing and what MOMAN is trying to advocate is that whenever price is adjusted, people should not go to the streets and close down the country for days. We need to move beyond that.
This is why a debate is inevitable whereby there will be suggestions from the media, civil society organizations and labour to agree on subsidy removal to make life easier for people. There has to be strategy on how to improve transportation systems and to make life more viable.
The fear of the negative impact can be dealt with collectively as a nation to find ways to solve the problems instead of seeking for a slight reduction of price which had been for the past twenty to thirty years. It is time to chat a new course in order to grow the economy, investment in the industry, create jobs and reduce poverty.
What will be your stand to the Presidential Committee on review of PMS price to propose a downward review like it did before since MOMAN was excluded from its membership?
In a deregulated environment having a Technical Committee to determine the price of petroleum products or how it will be sold is an aberration. There shouldn’t be such a thing if everything works well. The challenge of course is that everybody is trying to avoid economic hardship and disruptions. This is why a national discourse is paramount.
The previous reduction of price was a big surprise to marketers. Operators have no choice but to operate within the ambit of what the law allows them based on the guideline provided by the government. NNPC provides the product to marketers almost 100% and it is the only company importing all the products.
Whatever we do is based on the prices of what they sell to us. It is not efficient for only one entity to be involved in such activity. How long can NNPC sustain it?
If Nigeria continues to expend more than what it earns at one point or the other the country will not be able to continue to sustain it. This is the dilemma the country is facing hence there is need for workable ideas.
Report says members of Independent Petroleum Marketers Association of Nigeria (IPMAN) recently disrupted loading of petroleum products at private depots in Apapa, Ibadan, Ejigbo and Mosimi belonging to NNPC. It was gathered that marketers picketed the facilities to protest inability to get products due to a new payment method introduced by Pipeline and Product Marketing Company (PPMC), what do you have to say about this development?
I read about it in the newspapers just like anybody did. I am not aware of such challenges facing MOMAN members or any of them having issues with payment from NNPC. I can’t speak for IPMAN to understand what their issues are. However, I urge them to reach out to NNPC and try to resolve the issues so that the country will not be plunged into any artificial scarcity or panic buying which will create problems in the system.
Sir, can you make it clear if there is subsidy or not? Now that the price of crude is hovering around $60 and the Minister of State for Petroleum Resources has said that Nigerian should be prepared for an increase. How come if there is an increase in crude and the government makes more money, there is an increase, is oil a curse or a blessing?
Everything that God gives a country depends on how it makes use of it. Over the years Nigerians have been used to have relatively low price of refine products when you compare us to virtually all our neighbouring countries as prices are below the prices in all those countries. In essence, we are not charging ourselves the full value of the God given product simply because we say God gave it to us. It is akin to somebody having a farm and saying he would consume everything and not give the full value of it. Eventually, it may run out.
But the question you asked is that, is there still subsidy and all I will tell you to do is first, look at the price of diesel. If you see where the price of diesel is today and look at the price of petrol that shows automatically that the country is not feeling or getting the full impact of the increase in price of crude.
Gentlemen of the press, in price adjustments, what you will hear is that ultimatum has been given and in the next three days everything is going to slow down. Strike action follows, we need to desist from it because when operating in a working environment, prices go up. We have to look for ways to solve the situation, using the price of diesel as an indicator, the price of petrol ought to be much higher than it is today.
In the meantime, marketers are bleeding every day because if you look at the price of crude and the actual landing cost of refine product compared to how much marketers are paying for it buying from NNPC, the huge difference maybe N30, 40, 50, per litre. If that is multiplied by 50 million litres a day, it shows how much gap that is being breached. Instead of fighting or civil unrest over price increase we need to have round table talk on how to improve refining capacity. Endeavour to make transportation cheaper so that the impact is not felt by the people who board busses for secular activities.
If Nigeria continues to debate on subsidy without finding a lasting solution, it will come to a time where there will be nothing to subsidise and the country will confront serious problems.
What is MOMAN doing specifically to ensure the refineries are fixed by working with government officials to ensure that this happens?
First and foremost, what we can do is advocacy and as operators many of our members operate in different countries of the world. We can share best practices. Other stakeholders need to be involved in the discussion so that there are things that are outside our own capability as an industry which may involve other people. That is why we can do our own part but other people must also come up with workable suggestions. It is all about balance. We have no choice than to deregulate and leave this issue of subsidy.
We acknowledge the fact that it will come with hardship and pressure on the economy. The right framework to alleviate the impacts should be emphasised.
Is the government still owing MOMAN members in terms of arrears in fuel importation and how much is the government owing?
I will say to the best of my knowledge 80% to 90% of those outstanding has been paid there maybe a few ones due to documentation issues. We commend this administration for taking up all these arrears which were not created in many cases during this government.
However, in resolving those issues a lot of them come through Promissory Note. Promissory Note are not cash as the name implies it could be paid for three or four years. It means the instrument being used for payment of debt that were owed for three or four years ago.
Notwithstanding, marketers are thankful to government that a lot of the money has been paid but value of naira eight years ago cannot be compared today. That is the downside of it. It does not encourage business and investment.
In a subsidy regime, after importation, cheque is given by government and it realized that it was not sustainable, eventually it withdrew from the process.
Marketers are delighted that the scheme did not continue and government through NNPC seems to be absolving that difference.
Are there no way stakeholders can push for improved domestic refinery capacity for domestic use so that Nigerians will not bear the burden of international market prices each time there is an increase?
This is a pertinent question. In this kind of situation, you could put a huge investment involving billions which is incertitude. It is the uncertainty that has been partly responsible for the slow pace of investment in refining. The situation is likened to which comes first, the chicken or egg. For investors to invest billions of dollars they must be comfortable with policies and framework that will assure them that if they invest their money for the next 10 to 15 years is such that investment can be recouped.
If after the refinery has been opened for operation, the policy is changed and suddenly it is made an unprofitable venture only a virile investor will decide to take the risk. The good news is that some people have taken the challenge. Modular refineries are mostly diesel related. A few of them are planning second phases where they will expand to gasoline production.
Refineries are not cheap; they are very expensive and require a lot of consistency in policy. Some years ago, there were several licences that were granted for people to build refineries but barely few of them took off and the answers are simple. When you go to a bank to raise billions of dollars and the bank ask you a number of questions. The product that you sell is the price determined by market forces or by fiat? You respond to the bank by saying no; I don’t have control of the market.
Prices are determined through other means. The response of the bank will not be palatable because it cannot put shareholders fund at risk. These are existing challenges in the downstream, but if there is policy consistency and the Petroleum Industry Bill (PIB) is passed into law, it gives certainty on investment in refining. We should change from being a consumer of refine products to becoming a net exporter. When Nigeria becomes net exporter, it will generate more FOREX and create more jobs for its citizens.
Can you say that the federal government has fully deregulated the sub sector downstream and if so, why are Petroleum Product Pricing Regulatory Agency (PPPRA) and Petroleum Equalization Fund (PEF) still in existence?
It is the policy of government but has not been possible to implement fully due to challenges. Stakeholders should find out what is preventing the policy from working. What is the reason why a Technical Committee has to be set up when there was no such committee for diesel? The solutions to these problems should be addressed by concerned industry operators.
So, it is not just to say are we deregulated? Why is government not doing it. We are all part of the problem and need to come out with suggestions. Deregulation is government’s policy and it is willing to do it. If there are hiccups and challenges along the way every stakeholder gives his input to remove those problems in order to move forward.
We cannot continue to be at daggers drawn anytime there is a N10 increase in fuel and the country is closed down resulting to protest. After Covid-19 lockdown and ENDSARS protest, the country cannot afford another long series of lockdown.
On the issue of PPPRA, why the PIB is currently going through the National Assembly most of the questions asked will be addressed.
How are MOMAN members prepared on the issue of energy transition that is looming globally?
Energy transition is going to be based on economic reason. I was reading an article in an international journal that gasoline will become worthless in the next 30 years because many companies are building electric cars. A company like Tesla is now more valuable than companies like General Motors and Ford Motor Corporation. Even though they are selling only about 3% of the volume of cars that General Motors and Ford are selling. A company that is selling 3% of every 100 cars that General Motors and Ford are making. Tesla and other Chinese companies are making 3 cars the values of those two companies are more than the value of General Motors and Ford which shows that investors are putting greater hope in those electric cars as being the future.
Why we are arguing about subsidy whether it should be or not, other countries are moving forward and investing in new technologies and renewable energy. They will not wait for Nigeria because the country has not yet decided. They will move ahead and it is economical that will drive it.
First and foremost, we will discover that suddenly, petrol engine cars will diminish and there will be no parts for old cars because other countries have moved. When it gets to the point where you can no longer cope you have to adjust.
In fact, some multinationals have adjusted to current realities. Total has changed its name to Total Energy and what it means is that the company is already recognizing that there is going to be a world beyond fossil fuel.
The multinational company is taking its outlook to suggest that its focus is on energy whether from solar, gas and electric. Even though this may still take some years gradually, there will be a shift. In Europe petrol cars will soon be phased out and it will be difficult to get petrol engine. This may not be imminent particularly in our environment but the world is moving towards a direction and Nigeria should brace up to that change.
Nigeria is embracing gas, definitely, the country has it in abundance than crude oil.
How can the downstream JV compete in local refining in order to rid out import cost and reduce local retail pricing?
Dangote refinery is estimated from $12 to $14 billion. If the share capital of some oil marketers is added, it is not up to $1 billion. Such investment takes a lot of size and scale. When an operator is given a green field refinery the bulk of the investment lies on him. The bank may not put 100% fund in it.
The downstream industry has been impoverished. We have been crying for margin increase. Taking a look at the profitability of the oil marketing companies, only one has shown a positive value over the last ten years with regards to the Nigerian Stock Exchange. Companies in the downstream are not financially capable in the last four to five years some of them have closed shop.
Many terminals are closed because the businesses are no longer viable. That is part of the problem of fixing price of PMS when the cost is going up, the expenses are going up as well and marketers cannot adjust price to absolve cost and making loss instead of profit.
Marketers rely on other products like lubricants. If they had depended on PMS many of them would have folded up. It will be difficult for this same companies to invest $12 billion on a new refinery when they are struggling very hard to even keep their heads afloat.
As policies become consistent and investors are sure that there will not be a sudden change arising from interference through any means they will have confidence and not only members of MOMAN but individual business men will be able to invest and refining capacity will increase in the country.
My final words are that people have pointed out from questions they have raised by emphasising that there is increase in crude price. Is the market deregulated? Is there still subsidy? The answers to those questions are clear?
Are we not going to move forward? Shall we continue to operate under a situation where price increase is announced and ultimatum given by labour unions for people to take to the streets and protest? How shall we continue on what is not sustainable?
Every stakeholder should suggest solutions that will make life easier for people because the real fact is that Nigeria cannot afford to continue subsidizing prices of PMS which is the honest truth. As a country, we need to come up with viable solutions and help those most affected by any potential price increase.